The dollar hit a two-month high just above 121 yen on Wednesday and extended gains against the euro to a three-week high, as the euro extended the previous session's sharp falls after the ECB comments.
The euro slid after the comments by the European Central Bank which reaffirmed the bank’s resolve to meet its stimulus goals. Credit Suisse economists said the comments considerably reduce the risk of an early ‘tapering’ of ECB asset purchases and markets should brace for another bout of dollar strength against the euro, the Wall Street Journal reports.
The common currency was trading 0.2% lower at about $1.11 at midday in Europe, and hit a more than two-week low earlier in the day. A day earlier, the euro declined more than 1% against the dollar.
“In just over a week we have round-tripped from $1.11 to well over $1.14 and back, and the fun and games might not be over yet,” strategists at Rabobank wrote in a note.
Economist Lee Hardman at Bank of Tokyo-Mitsubishi, meanwhile said that the greenback had sold off on weak data over the past few weeks, but this week’s rebound indicates that it may have fallen too far.
Data released Tuesday indicated that U.S. housing starts rose to their
highest in nearly 7-1/2 years in April, while building permits soared.
That spurred a rally in the dollar sparked earlier in the day after ECB
Executive Board Member, Benoit Coeure, said the central bank could moderately increase its asset buying in May and June, CNBC reports.
"It was that old 'one-two' combination of punches," Kit Juckes, macro strategist at Societe Generale, said in a note on Wednesday.
"A jab from Benoit Coeure in the morning news … and then a solid blow from the U.S. housing starts data which finally delivered a well-above expectations increase and suggested that maybe - just maybe - the U.S. economy will enjoy a better spring than winter after all."
Meanwhile, European government bonds and equity markets were marginally higher
Wednesday after soaring on the ECB comments Tuesday.
The Stoxx Europe 600 was recently about 0.1% higher.
